Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Market expecting first of rate cuts

AAP  |  03 Jun 2019Text size  Decrease  Increase  |  
Email to Friend

The Reserve Bank of Australia is set to deliver an interest rate cut this week, with the key question then how many more reductions will follow.

The first rate move in almost three years will be the headline event in a big week for economic news, with key data including the latest growth figures to be released.

The central bank is expected to cut the cash rate to a record low 1.25 per cent on Tuesday.

"We and the market will be shocked if the RBA doesn't cut in June," ANZ economists said.

"Of more interest will be any clues it might provide about action beyond that."

Reserve Bank governor Philip Lowe will issue a statement accompanying the rate decision, but clues about further rate moves may come from his speech to a RBA board dinner with the business community in Sydney Tuesday night.

Economists expect there will be a second 25 basis points decrease in the cash rate to 1.0 per cent in coming months, likely in August.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Opinion is divided on how much further the RBA may go, with Westpac tipping a third rate cut in November while JP Morgan predicts four reductions to take the cash rate to 0.5 per cent by mid-2020.

Nomura analysts share the consensus view for 25 basis point rate decreases in June and August, but believe the market is likely getting a little ahead of itself when speculating about three or four rate cuts.

"We do think the case for two rate cuts has already been made, based on recent employment, inflation and financial stability (declining dwelling prices) developments," a Nomura note said.

"However, we have seen several pieces of positive news more recently, which suggest to us the RBA may move back to the sidelines after delivering these rate cuts, to monitor incoming data flow."

The national accounts data to be released on Wednesday is expected to show economic growth remained soft in the March quarter.

The market consensus is for gross domestic product growth of 0.4 per cent in the quarter and 1.8 per cent annually.

National Australia Bank noted a 0.4 per cent quarterly rise would be weaker than the RBA's implied forecast of 0.6 per cent growth, forcing it to revise downward its expectation for a rebound in activity.

"Given weak growth and low inflation our view is for two 25 basis point cash rate cuts this year, with risk of further stimulus by early 2020," NAB economists Alan Oster and Gareth Spence said.

"Another quarter of weak growth would suggest increased risk of further stimulus."

The Australian sharemarket is poised to open lower on Monday after US stocks were jolted on Friday by President Donald Trump's threat of tariffs on Mexico. The Standard and Poor's index fell 1.32 per cent during Friday's session to close out its biggest May slump since 2010.

The long list of economic data out this week includes retail sales, trade and lending figures for April and the March quarter current account deficit.

provides Morningstar with market news.

AAP logo

© 2022 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.

Email To Friend